Business News of Tuesday, 8 January 2019
Banks and their bankers come and go. So do central bank governors and their staff.
But unlike the people and institutions who enter and exit the stage as and when they desire, their actions and decisions live after them.
And while the actions of the players are continuously under the scrutiny of the regulator, central banks are virtually demigods on their own right; their decisions and actions are considered sacred and as such hardly questioned.
Except in the developed world where stricter and credible checks and balances exist for central banks to account for and defend their decisions, mostly in public, financial sector regulators in developing countries are allowed the latitude to act and not be asked why, and why not.
Simply put, they hardly account in a manner that allows for transparency and national retrospection with the aim to improve upon future actions and, most importantly, for the public to be assured that the decisions were not hasty and bias but fair, credible and necessary for the wider good of society.
This is unprogressive, counterproductive and grounds for pluralism, especially for Ghana, a country with a checkered history in the area of indigenous entrepreneurship and financial intermediation.
The BoG case
The Ghana situation is even more complicated. Over the years, the country allowed the usual politicking to cloud almost every discussion around the policies and actions of the Bank of Ghana (BoG) – our central bank.
This has now been worsened by the robust nature of the legal regime that BoG currently operates with.
In late 2016, our Parliament gifted the central bank the strongest legal regime yet that any regulatory institution can ever get.
That legal framework, the Banks and Special Deposits Institutions Act, Act 930 (2016), grants the central bank unfettered powers to, among other things, revoke a licence upon the basis of grounded suspicion! (Section 16 (1)a)
Between August 2017 and January 4, this year, the law has been heavily applied for the first time and the outcome is massive: Nine banks have been collapsed, one downgraded to a savings and loans company, an administrator appointed for another (whose licence was later revoked) and four others (two of which later lost their licences), including the state-owned National Investment Bank (NIB), have been given advisors!
Termed a banking sector clean up, the exercise by the central bank has also led to some 3,500 people losing their jobs and the state incurring a cost of over GH?12 billion.
Existing and collapsed banks and other financial institutions also suffered widespread panic withdrawals.
The pass-on effect is a general liquidity crunch in the entire financial sector with public confidence in deposit and non-deposit taking institutions now at record lows, according to the BoG summary of economic and financial data and the performance of the twin indices of the Ghana Stock Exchange (GSE).
Why BoG must account
While Act 930, one of the fruits of the three-year programme with the International Monetary Fund (IMF), has come in handy for BoG’s reform exercise, its application and the impact thereof begs the question if BoG must not account, explain and defend itself for the decisions taken.
This is necessary, particularly when the state, call it taxpayers, have to borrow to finance the bank’s decisions and in the process, spike an already distressing national debt stock.
For a country struggling to create jobs, including bending backwards to fund initiatives such as the Nation Builders’ Corps (NABCo), the question that needs to be asked is whether losing over 3,500 jobs in the banking sector is worth the cleanup. Of course, the question from the flip side is if no action would not have led to wider ramifications.
Granted, but were there no less costly, more efficient and unaggressive measures for BoG to have used to achieve the same results?
Rather than the resort to nationalisation of problem banks, (so to say) in the case of the revocations of the nine licences and the subsequent transfer of selected assets and liabilities to GCB Bank and Consolidated Bank Ghana Limited (CBG), could the BoG and the government not have used the option of equity investment to help these now failed banks out of their financial situations, restructure the governance issues and exit later?
Does the BoG has a way to simulate its decisions on the revocation of bank licences to ensure that the country has in place the necessary buffers to contain the spillover effects?
And why were some of the banks allowed to exist until 2019 when BoG had access to their respective levels of infractions from day one? Did this deepen or lessen the impact on the state?
These, among others are genuine questions that the BoG needs to respond to in the spirit of fairness, accountability and transparency to help guide future decisions, policy formulation and gain public trust in the entire process.
To do that, however, there must be a fair, objective and robust platform that the public can trust to deliver equity.
Options to consider
In the United Kingdom (UK) and the United States of America (USA), where the financial markets are deep, the Bank of England (BoE) and Federal Reserve System (Fed) of USA are mandated to appear before their legislators on quarterly basis to explain and defend their decisions.
At those fora, representatives of the people, who have enormous expertise in financial sector operations, grill the officials of these institutions on past decisions and the outcomes serve as pointers to future policies and actions.
A similar thing should be instituted in Ghana and made mandatory and followed through.
It is true that Article 184 (1) of the 1992 Constitution mandates BoG to appear before Parliament’s Select Committee on Finance biannually. However, those appearances are limited to discussions on foreign receipts and payments in the ensuing periods, not the entire work of the central bank.
Similar provisions exist in the BoG Act.
This is why a better forum is proposed. But instead of appearing before the entire House, the structuring should be that the BoG appears before either the Finance Committee, the Public Accounts Committee (PAC) or a creation with such powers, expertise, objectivity and clout of parliament to deal with such pertinent issues as to the activities of a central bank.
At a glance, the Finance Committee is the most appropriate yet it appears the lest preferred because of perception among Ghanaians that it is sometimes partisan, with members from the majority side always working to protect the interest of the sitting government.
The outcome of the 2018 hearing on this same banking crisis (to which no report has been released to the public yet and nothing said about the findings) is a fresh example. This is not what the UK and USA systems produce.
Given the chance, the PAC appears more preferable, judging from its firmness in previous sittings. The fact that the chairman of the committee is always a member from the opposition side gives it further semblance of fairness and a better reflection of the people, not a sitting government – one of the fundamentals needed to make the structure credible.
But with the proposed appearance of the BoG not being about the accounts of a public institution, but about the activities and policies of the central bank, it makes it impossible to come under the PAC.
This leaves us with three options; create a comparatively stronger, fair and objective forum, amend the powers of PAC to be able to interrogate BoG in this regard or get the Finance Committee to adopt a more bipartisan approach on issues of this nature.
Avoiding a repeat
Whatever path we take, we need to be reminded that a forum, however weak, is better than no forum. The time has come for us to get a credible structure that forces BoG to account for its decisions.
The BoG, as we know, is not like any other institution. It regulates the most sensitive sector of the economy and its decisions have multiplier effects on the economy and lives, including that of a cobbler in Tuobodum in the Brong Ahafo Region.
The people who occupy the central bank from time to time, including the current Governor, Dr Ernest Addison, may be nice people with firm convictions; convictions that seem to defy current logic but rooted in principles and may produce the best results yet for the country.
That notwithstanding, it doesn’t immune them from slipping off, falling to political pressure and making choices that could have long-term implications on national cohesion and the general stability of the economy.
Getting them to account keeps them in check and allows for national discussions in a manner that will also inform future decisions.
From hindsight, it is instructive to note that the availability of such a structure could have minimised, if not prevented, the challenges that the current leadership of BoG has been saddled with, to quote Dr Addison. Such a forum could have elicited information around the challenges of the now defunct banks and prompted corrective measures at the time they were best needed.
That opportunity has eluded us and each of us is now bearing the brunt. We must aim to avoid the next, else posterity has every right to strongly rebuke all of us.